Thawing Geopolitical Tensions Push Spotlight On Direxion's China-Focused CWEB ETF

Immediately following President Donald Trump's Liberation Day announcement in early April, the equities market suffered a catastrophic decline. At the time, the Dow Jones Industrial Average plunged 1,178 points, the equivalent of a 2.7% valuation loss, as investors attempted to digest the disclosure. It wasn't that the underlying tariffs represented a new concept. Rather, it was the scope of the directive.

Based on the initial volley, nearly all imports into the U.S. were slapped with a minimum 10% tariff. However, certain countries were hit harder. For example, the European Union incurred a 20% tariff, while Japan was hit with a levy amounting to 24%. However, China suffered the brunt of the damage, absorbing a 54% tariff on its exports.

Not surprisingly, Asian markets suffered tremendous volatility when the Trump administration unveiled its sweeping new tariffs. One of the main concerns was the nationalistic commentary that accompanied the levies. For his part, Trump characterized the tariffs as a reset of American trade policy, calling the announcement "the day American industry was reborn."

Naturally, Beijing responded emphatically to the tariffs, labeling the measures as "typical unilateral bullying." At the same time, the groundwork was set for reciprocal tariffs, elevating fears of a protracted and painful trade war.

However, over the past few weeks, tensions have noticeably cooled between the U.S. and China. While it's too early to say that a permanent solution has been reached, both sides have agreed to maintain ongoing communication. Importantly, the diplomatic engagement comes amid the two nations agreeing to de-escalate their trade war by cutting tariffs by 115%.

Notably, the improved trade outlook prompted economists to cut recession odds and upgrade U.S. growth forecasts for the second half of the year. On the other end of the Pacific, Chinese equities – including internet tech firms – have witnessed a sentiment rebound.

The Direxion ETF: Those interested in re-examining the long-side narrative of Chinese internet stocks may consider the Direxion Daily CSI China Internet Index Bull 2X Shares CWEB. A leveraged exchange-traded fund, the CWEB fund seeks daily investment results of 200% of the performance of the CSI Overseas China Internet Index.

Primarily, the function of the CWEB ETF is to offer a convenient mechanism for speculation. Typically, those interested in bullish leverage must engage the options market; specifically debit-based strategies. However, derivatives feature unique complexities and challenges. In contrast, Direxion ETFs can be bought and sold much like any other public security. Therefore, the learning curve is relatively shallow.

At the same time, prospective participants must be cognizant of the risks associated with the CWEB ETF. For one thing, enhanced leverage means increased risk exposure. While the good times may be great, the bad times are also exacerbated. Furthermore, leveraged ETFs are designed for holding periods lasting no longer than one day. Exposure beyond the recommended period may lead to valuation decay due to the daily compounding of volatility.

The CWEB ETF: Since the start of the year, the Direxion Daily CSI China Internet Index Bull 2X Shares has gained nearly 22%, benefiting from the aforementioned thawing of geopolitical tensions.

Following the initial shock of the Liberation Day announcement, CWEB has managed to drive its price action above the 200-day moving average (DMA).
At the moment, the bull fund is trending below its 50 DMA, which suggests some uncertainty as to how trade policies will ultimately pan out.
Moving forward, the bulls will likely attempt to establish a strong baseline at the $40 level, with an attempt to drive toward the price clustering zone around $46.